I BLEW IT: 11 VCs Regret The Huge Companies They Said “No” To

Cash is king, so venture capitalists often have the upper hand when it comes to meeting with early-stage entrepreneurs. But when startups become big and awesome, the tables turn. Some venture capitalists get that. Others don’t seem to. One frustrated entrepreneur, Andy Dunn, has met with a number of investors for his clothing startup, Bonobos. He wrote a rant that described “dumb VCs” he and other entrepreneurs have dealt with. Bonobos is an e-commerce company that has raised more than $70 million. Its clothing is sold online and nationwide in Nordstrom stores. Dunn raised $30 million in March, and that fundraising process may have inspired the rant. Dunn described one “dumb” investor he met with six times. That person never offered to invest but he also never turned Dunn down. Instead, he just wasted Dunn’s time. Later, when Dunn didn’t inform him about his funding round, the investor acted confused. “Dear Dumb VC, it’s not my job to call you. It’s your job to call me,” Dunn writes. “And the fact that we spent all that time together, and you never got me a term sheet is a strong indicator that you’d rather do what’s in your worst interests than what’s in my best.” Jeremy Lieu of Lightspeed, however, wowed Dunn. Lieu came into his first two meetings visibly prepared. “One of the reasons Jeremy Liew from Lightspeed is an investor in Bonobos is he showed up in our first two meetings wearing my pants!” Dunn writes. It proved Liew had tried Dunn’s product. Dunn concludes his post with another anecdote from a fellow entrepreneur. The founder is now working on a billion-dollar startup, but early on, he was blown off by a VC. “This VC was seventy-five minutes late to meeting with me. He never called to say he was running late. When he got to the office, I wouldn’t meet with him. He groveled to get into meeting with me, and my team was pressuring me to just take the conversation, but I told them to politely tell him that he missed the meeting. That night, as he had flown into town to see me, he kept offering drinks or dinner to make up for it via email. He then went so far as to say his partners would be livid with him for screwing this up. I never took the meeting with him and I never rescheduled. I’d never get another meeting with him if I blew off his time like this, so why should he get another meeting with me?” “Dumb VCs” aside, even good VCs have botched great startup deals. Here are some of their biggest regrets.

We asked angel investors and venture capitalists to tell us about the startups that got away. That is, the startups they could have invested in early, but ultimately passed on for whatever reason. Even the best investors make mistakes. They overlook opportunities, aren’t aggressive enough, or miss out rounds. From Ron Conway to Fred Wilson, we have some good stories about who missed what and why.First Round Capital’s Charlie O’Donnell passed on Foursquare because he was broke.

“I wish I would have borrowed $5,000 and offered it to Dennis in the Foursquare seed round, given that I was helping them tell the story and work their way through the VC process,” O’Donnell tells us.

“I wasn’t at a VC fund at the time, but was very tempted to make the offer. The only problem was that I was $30,000 in the hole from working on my startup and literally didn’t have a dime.”

Mark Pincus approached an acquaintance, David Tisch, about Zynga when it was Facebook poker, and Tisch walked away.

“Mark Pincus had grown up with a family friend of mine and I talked to Mark when he had an idea for Facebook poker. I was playing professional poker at the time and it didn’t make sense to me. There were so many other free poker sites where you could win real money, and this was for virtual goods. So I moved on.

“I probably can’t regret passing on another deal because the first deal I passed on was Zynga. You can always look back at [a startup] and say, ‘You’re probably not going to be Zynga.'”

SV Angel’s Ron Conway passed on Salesforce.com because the $30 million valuation seemed too high at the time.

“I missed/turned down Pandora ands Salesforce.com,” Conway tells us.

“Pandora because I was fatigued with music at the time…[it had been] six years since we invested in Napster. And [we passed on] Salesforce because the $30 million valuation seemed too high at the time!”

Venrock’s Marissa Campise is sure she’s passed up some good opportunities, but it’s too soon to tell.

“I’ve looked at companies in their infancy that I probably should have pushed to get,” Campise tells us.

“But I’m not sure I regret too many [decisions]; you miss some, and I’ve been taught that that happens in this business.

“Plus, I’m pretty early in my career so the two NY-based companies I looked at and thought were too early are still TBD. The average holding period is 7 years so it’s too early for me to tell because I’ve been in this business less than that.

“The companies perceived to have a hot hand today may not be so hot 5 years from now. We never know how it will turn out but try to make the best decisions through our individual analytical lenses.”

Fred Wilson wishes he had invested in Airbnb, but does not wish he had invested in Pandora or Groupon.

He says the founders paid a visit to Union Square Ventures during Y Combinator 2009.

“At that time, Airbnb was a marketplace for air mattresses on the floors of people’s apartments,” Wilson writes. “We couldn’t wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the “eBay of spaces.”

“We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do.”

“At the time, he had a vision for creating a learning revolution through in-person classes. He believed (as did I) that everyone has something to teach, and that the barrier to teaching and learning from peers should come way down.
“I loved the idea, and am a big fan of the democratization of education. But although Michael was well regarded, I only really knew him by reputation. He didn’t have that much to show – product ideas were mainly thesis that needed to be tested. He was also raising a very small amount, and I was concerned that the team may not reach enough value-accretive milestones given the modest raise. We were also in the process of doing a close on our fund, so I was distracted. I declined to invest, thinking that we’d have another bite at the apple at a larger institutional seed round.
“Fast forward a few months, and the Skillshare team has executed brilliantly.

“Lessons learned – follow your hunches, especially about people. It’s too easy to think to yourself, This is too early, especially when it’s someone you don’t know. I should have pinged our friends at Founder Collective who knew Michael well and gotten more direct feedback. Instead, I let pattern recognition take over and saw something a little outside our standard zone and moved on.”

Venrock partner David Pakman missed out on Twitter’s C round because he was still getting his sea legs in venture.

“I had just started at Venrock and took a good look at Twitter’s C round,” Pakman tells us.

“I don’t want to flatter myself and say that we could have won the deal (it went to Benchmark and IVP), but we took a good, hard look at it and we did not move aggressively enough to try to win the deal.

“That was a huge mistake. I was still getting my sea legs in venture (I actually still feel that way more than 2 years later!) and was a bit gun shy in my partnership making my first deal a round priced at $225M-pre, but live and learn…”

GRP Partners’ Mark Suster regretted letting Gogii get away, so he competed for it a year later and won.

Suster competed for Gogii (TextPlus) only to lose the deal because the company’s current investor didn’t know him well enough. Also, the team wanted an investor who was knowledgeable about China.

“I decided to put both of those issues to bed in 2010,” Suster writes. “I came several times to NorCal (where I grew up, actually) and went and met several partners from each Silicon Valley firm. I didn’t want this to happen again – that people didn’t know me…I also spent two weeks in China and vowed to make it back frequently.”

Eighteen months later, Suster became a Gogii investor. “I never gave up. I quietly watched their success from the sidelines and kept spending time with and telling the CEO, Scott Lahman, that I wanted to invest in his next company. The opportunity came up to invest in this one and I pounced.”

Suster also missed out on Magento Commerce and wishes he’d been a part of Twitter. “I would love to have been in at the $100 million valuation,” he says.

Mike Duda of Consigliere Brand Capital wishes he had invested in Warby Parker.

Mike Duda is a partner at Consigliere Brand Capital in New York City. Fun fact: his partner is Phoenix Suns player Steve Nash.

He has invested in three companies: Chloe & Isabel, Birchbox, and STELLAService. He wishes he could add glasses company Warby Parker to his portfolio.

“The one I WISH I had seen but didn’t was Warby Parker,” Duda tells us. “I love what they are doing and, having worked on LensCrafters, I know they have big marketplace potential.”

Ben Lerer of Lerer Ventures missed out on Skillshare, Foursquare, and Uber because he didn’t trust his gut.

“Drew came by to get advice on his new startup and we met for an hour or two. We chatted about strategy, recruiting, fundraising etc – the usual early stage conversations. He then moved off to California – I think to do Y Combinator.

“The next time I heard from him he had just closed a round of financing from Sequoia. I was never offered to invest in the company but probably I could have if I asked Drew since he had come to me for advice.

“Sometimes when people come to you for advice like that they are really hoping you will ask to invest and I didn’t. I’d have to say in all honesty if I were offered I probably would have passed. From 2005-6 I saw about 100 consumer backup/storage/file sharing companies raise funding. It just seemed like an insane idea to start another one and it seemed like Drew’s only thesis was that his product would work better.

“Well, it turned out storage is a hard problem [to solve] and having an MIT storage guy who builds a great product actually matters. I don’t know how under any investment philosophy that emphasized theses, areas of investment, road maps, etc you could have decided to invest in B2C file sharing company #120 in 2007. Obviously Sequoia knew better than me and invested. I think the only way they could have made that decision was by ignoring the space, competitors, etc. and simply investing in a super talented person/team.

“Dropbox is one reason I now have a strict rule to only invest in teams. There are other examples of companies I missed and other examples of the converse – companies where I invested in mediocre people chasing a great idea and the company failed – but Dropbox is emblematic to me as to why you should always invest in people over ideas.”

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About bambooinnovatorBamboo Innovator Institute is set up to establish the thought leadership of resilient value creators around the world.
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia. The Moat Report is developed together with our European partners The Manual of Ideas (www.manualofideas.com), the idea-oriented acclaimed monthly research publication for institutional and private investors. The MRA’s paid-subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities and savvy private individual investors. KB has presented his thought leadership as a keynote speaker in global investing conferences. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, macroeconomic and industry trends in Singapore, HK and China.
KB has been rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm since 2002. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Mirae Asset Global Investments, Korea’s largest mutual fund company. He holds a Masters in Finance and degrees in Accountancy and Business Management, summa cum laude, from the Singapore Management University (SMU). He had published cutting-edge empirical research in the Special Issue of Istanbul Stock Exchange 25th Year Anniversary of the Boğaziçi Journal, Review of Social and Economic Studies, as well as wrote articles about value investing and corporate governance in the media. KB is currently a faculty member at the School of Accountancy, Singapore Management University, where he teaches accounting courses that include Management Accounting and Accounting Fraud in Asia.

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